The GM stock offering is being hailed as a huge success by the Obama administration:
President Barack Obama says General Motors’ plan to sell stock marks a major milestone not only in the turnaround of that iconic company, but of the U.S. auto industry as a whole.
A slimmed-down GM will begin offering stock Thursday, ending the government’s role as majority shareholder.
As I warned in early September, the stock offering likely would result in a loss to taxpayers. And it did, as reported by Reuters (emphasis mine):
The U.S. government is satisfied with pricing and the investor lineup in the General Motors Co [GM.UL] (GM.N) public offering, a senior Obama administration official said.
Ron Bloom, the administration’s point man on auto restructuring, told Reuters Insider ahead of GM trading on Thursday that the government wants a fair return for taxpayers on its $50 billion investment, but also wants to “get out of this thing as soon as we can.” ….
Bloom said GM has done the right thing and pricing of $33 per share is a “fair deal” even though the partial sale represents a loss of roughly $9 billion on taxpayers’ original investment.
Oh, by the way, GM is not even promising to repay the remaining taxpayer investment, and it is unlikely that future stock sales by the government will be enough. As reported by CNN (emphasis mine):
But even with that stock sale and other money returned to the government by GM, about $27 billion will remain unpaid. Whether taxpayers get that back will depend upon the price the government gets for its remaining 33% stake in the company when it sells shares in the future. The share price will have to rise about 65% in order for taxpayers to break even….
New CEO Dan Akerson said this was the right time for the company to go public again, but stopped short of promising that taxpayers would be paid back with future stock sales.
In January, then-CEO Ed Whitacre promised that taxpayers would be repaid and might even make money on the bailout.
“I think the government’s investment is well placed and I think they’ll make a lot of money,” Whitacre told CNNMoney on the floor of the annual auto show in Detroit. “It won’t be too long.”
Had GM gone through the normal bankruptcy restructuring process, taxpayers would not have lost a dime and the company would have emerged even stronger than it is today.
If this is success, what is failure?
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